March 4, 2020 – Citing the exposure of skilled nursing facilities, and their residents, to the COVID-19 virus, MidCap Financial Trust ("MidCap") has announced that it will no longer be providing exit financing to the reorganizing Debtors.
For the Debtors, who had their Plan confirmed in mid-December, this development throws plans to emerge shortly from bankruptcy into disarray. It has also led to recriminations amongst the Debtors, who believe that their Plan would have gone effective at the end of February if exit financing preparations had proceeded apace…and MidCap, which not only objects to any suggestion that they dragged their feet; but counters that the Debtors bear responsibility for delays, having repeatedly shifted theiir financing plans and failed to be responsive in MidCap's diligence efforts.
In a notice filed with the Court [Docket No. 2598], MidCap's counsel commented: "On the afternoon of March 3, 2020, MidCap informed the Debtors of MidCap's determination that MidCap could not, as of March 3, proceed to close on the exit loan facilities in light of credit risks inherent in the growing COVID-19 epidemic and the particular risks posed to at-risk skilled nursing facility populations due to common underlying health conditions and the typically advanced age of such patients."
After detailing MidCap's contractual right to pull the exit financing, the notice continues: "I have read the transcript of the February 27, 2020, status conference. Given the frequency and detail of status updates (written or otherwise), I was very surprised by the misstatements from counsel for the Debtors and counsel for the UCC effectively casting all blame on MidCap and Waller for the loan facilities not being in a position to close on February 28, 2020. It was particularly shocking to see representations from Mr. Johnson and Mr. Joachim indicating that the Debtors were, as of February 27, 2020,'ready to go' and that they had 'done everything [they] need to do,' such that, as of February 26, 2020, 'everybody was on track to close [February 28, 2020]'."
MidCap's counsel continues an aggressive defense of its client, placing the onus for the delays squarely on the Debtors: "The Debtors informed Waller [MidCap’s counsel] by email at 7:50 pm (Central) on February 25, 2020, that the Debtors were now attempting to work out a different scenario under which they would no longer need financing or financial accommodations from JMB or CIBC. For at least the fourth time since work began in connection with the documentation of the loan facilities, the Debtors were looking to revise the overall loan structure. Under this new structure, the Debtors would not need the liquidating Debtor loan facility previously contemplated to be funded, at various times, by MidCap and JMB, Lancelot, MidCap and JMB (again) and then CIBC….Waller, after hearing suggestions of the enormous undertaking that would be required to close the loan facilities from all of the various parties on the call, finally acknowledged that, in the interests keeping the Court fully apprised given the pending status conference, the parties should begin to plan for a post-February 28, 2020 closing.
During four months of negotiation and drafting, Debtors' counsel routinely responded to questions and requests for information in a manner that was either inaccurate, incomplete, or both. Waller and MidCap were repeatedly provided with outdated and incorrect organizational documents, bank account charts, management agreements, billing services agreements and other required business and healthcare diligence items. Waller was provided access to an electronic data room that contained thousands of documents, many of which were mislabeled. Often weeks passed with representations made by Debtors' counsel that various requested documents had been uploaded to the electronic data room, only to find out that they hadn't and requests for the same had to be renewed. The task of digesting and cataloging the operations and documents of a large distressed business is certainly a difficult one, but the manner in which it was done in this case, whether attributable to Debtor's counsel or state of the information they were provided, nevertheless resulted in significant delays throughout the loan documentation process.
Additionally, on February 29, 2020, Debtors' counsel provided an almost entirely new list of litigation matters (totaling approximately $4,000,000 in potential liability) required for MidCap to complete its underwriting and diligence. Further, as of the end of the day on March 2, 2020, Debtors' counsel still had not provided complete and final schedules to all of the various loan agreements.
In their own filing [Docket No. 2596], the Debtors have stated: "Accordingly, the Debtors are presently unable to go effective under the Plan. Given these recent developments, the Debtors are evaluating potential options, including a replacement Exit Facility Lender."
Background
On December 4, 2018, Senior Care Centers and 120 affiliated Debtors (together, “Senior Care” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 18-33967. In their lead Petition, the Debtors, a Dallas-based, skilled nursing and long-term care industry leader operating in Texas and Louisiana, noted estimated assets between $100.0mn and $500.omn and estimated liabilities between $100.0mn and $500.0mn. On December 13, 2019, the Court hearing the Senior Care Centers cases confirmed the Debtor’s Third Amended Chapter 11 Plan [Docket No. 2376].
About Senior Care Centers, LLC
The Debtor’s website states, “Our organization was founded in 2009, with just 14 skilled nursing facilities and rapidly expanded to our current size. With nearly 7,000 team members, we offer skilled nursing services, short-term rehabilitation, long-term care, assisted living and independent living in over 60 locations in 41 cities across Texas. Every day, Senior Care Centers provides care for approximately 8,000 patients across our communities.
Our caregivers are the heart of our organization, and their dedication and passion is paramount to our success. We are looking for people who share our dogged commitment to take excellent care of our patients and residents whether through a direct caregiving role, or in a support function that helps ensure the caregivers have what they need.”
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